8x8 (EGHT) Q4 2025 Earnings Call Transcript

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DATE

Monday, May 19, 2025 at 5 p.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Samuel Wilson

Chief Financial Officer — Kevin Kraus

Vice President, Investor Relations — Kate Patterson

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SUMMARY

The company accelerated migration off the legacy Fuse platform in Q4 FY2025, materially reducing related revenue headwinds and simplifying operations for future periods. Product innovation efforts advanced, with 8x8 launching industry-first AI features and expanding its technology partner ecosystem, directly supporting customer wins across sectors including travel, healthcare, and financial services. Management emphasized improving balance sheet health, including ongoing debt reduction and lower stock-based compensation, which allowed greater operational flexibility and resulted in four consecutive quarters of stockholders’ equity growth as of Q4 FY2025.

Chief Executive Officer Wilson stated, “The flywheel is starting to turn,” highlighting progress in the company’s core revenue growth and improved strategic execution during Q4 FY2025 and the full fiscal year.

Fuse customer upgrades progressed ahead of plan, with executives reaffirming all transitions are expected by calendar year-end 2025.

Rapid adoption of communications API (CPaaS) contributed to usage revenue growth, now representing approximately 13.5% of total revenue (non-GAAP) in Q4 FY2025.

Management projects a return to high single-digit service revenue growth (non-GAAP) by FY2028 as Fuse headwinds subside and cross-sell momentum builds.

AI-based product enhancements and omnichannel integrations were showcased to global customers and partners as key differentiators versus legacy competitors.

Interest expense is expected to decline meaningfully in FY2026 following substantial debt repayments, supporting stable non-GAAP net income even with planned operating margin compression due to investments in growth initiatives.

TAKEAWAYS

Total Revenue: Total revenue reached $177 million in Q4 FY2025, near the midpoint of company guidance for the quarter.

Service Revenue: Service revenue was $171.6 million in Q4 FY2025, close to the guidance midpoint, with positive year-over-year growth, excluding Fuze (legacy Fuse platform) revenue, for both Q4 and the full fiscal year 2025.

8x8 Service Revenue Growth (Excluding Fuze): Year-over-year growth was 4.6% in Q4 fiscal year 2025, an acceleration from 2.7% in Q3 and the highest growth rate in 10 quarters.

Fiscal Year Service Revenue Growth (Excluding Fuze): 2.8% in fiscal 2025, compared to 1.8% in fiscal 2024.

Fuze Impact: Revenue from legacy Fuse customers fell to under 5% of service revenue in Q4 FY2025, down from approximately 11% in fiscal 2024's Q4; The company remains on track to complete migration by the end of calendar year 2025.

Gross Margin: Adjusted gross margin was 69% in Q4 FY2025, at the low end of the company's guidance range, reflecting a higher proportion of lower-margin platform usage revenue.

Operating Margin: Adjusted operating margin was 10% in Q4 FY2025, at the high end of guidance. The company also marked its third consecutive quarter of GAAP operating income.

Operating Cash Flow: Operating cash flow was $5.9 million in Q4 fiscal year 2025; $63.6 million for fiscal 2025, within the $61 million to $65 million full-year guidance range.

Debt Reduction: The principal balance was lowered by over $209 million, or approximately 38%, since August 2022, including a $15 million prepayment in Q4 FY2025, and another $15 million payment in April during Q1 FY2026.

Stock-Based Compensation: Stock-based compensation declined to 4.6% of total revenue in Q4 FY2025, representing a $22 million year-over-year decrease in Q4 fiscal year 2025 and a $50 million, or 55%, reduction over the two years ended Q4 fiscal year 2025.

Cash and Debt Position: The company ended Q4 FY2025 with $89.3 million in cash, cash equivalents, and restricted cash; Net debt to trailing 12-month EBITDA was approximately 2.7 times as of Q4 FY2025, down from over 6 times in fiscal Q2 2023.

Remaining Performance Obligation (RPO): $780 million at quarter end, up about 1% year over year in Q4 fiscal year 2025, indicating year-over-year growth in multiyear contractual commitments.

Customer Product Adoption: Customers with three or more products rose 13% year over year to more than 700 in Q4 FY2025. Over half of subscription revenue now comes from customers with two or more products as of Q4 FY2025.

Microsoft Teams Integrations: Total licenses sold into Teams environments grew 30% year-over-year in Q4 fiscal year 2025, surpassing 550,000 seats as of Q4 fiscal year 2025.

Platform Innovation: Introduced new AI capabilities, including chat summarization, Compose with AI, JourneyIQ, and AI Orchestrator, and led the industry with RCS business message integration.

Fiscal Q1 2026 Guidance: Service revenue is projected at $170 million to $175 million for Q1 FY2026. Total revenue is expected to be between $175 million and $182 million for Q1 FY2026. Adjusted operating margin is forecast between 9% and 9.5% for Q1 FY2026. Operating cash flow is expected at $5 million to $6 million for Q1 FY2026. Adjusted EPS is expected to be between $0.07 and $0.09 for Q1 FY2026.

Fiscal 2026 Guidance: Service revenue is expected to be $682 million to $702 million for FY2026, total revenue between $702 million and $724 million, adjusted operating margin is projected at 9%-10% for FY2026, and operating cash flow guidance is $40 million to $50 million for FY2026. The Adjusted EPS is expected to range from $0.34 to $0.37 for FY2026, based on approximately 144 million average diluted shares outstanding for FY2026.

INDUSTRY GLOSSARY

CPaaS: Communications Platform-as-a-Service; cloud-based platforms enabling developers to add real-time communication features (such as voice, video, and messaging) into their own applications without building backend infrastructure.

Fuze Platform: Acquired legacy communications and collaboration software suite being phased out as customers migrate to the main 8x8 platform.

RCS: Rich Communication Services; an advanced messaging protocol enabling interactive, branded business messaging within digital channels.

JourneyIQ: 8x8’s advanced platform providing real-time visibility into customer journeys across departments and channels.

AI Orchestrator: Tool that enables graphical configuration of communication workflows, integrating automated and live agent interactions within the contact center.

CIDP: Customer Interaction Data Platform; proprietary 8x8 technology aggregating and contextualizing customer interaction data across multiple channels for AI-driven optimization.

TPEST: Technology Partner Ecosystem; 8x8's integrated solution network with third-party providers enabling specialized capabilities and industry compliance features.

Full Conference Call Transcript

Samuel Wilson, our Chief Executive Officer, and Kevin Kraus, our Chief Financial Officer. Following our prepared remarks, there will be a question-and-answer session. Before we get started, let me remind you that our discussion today includes forward-looking statements about our future financial performance, including investments in innovation and our focus on profitability and cash flow, as well as statements regarding our business, product, and growth strategies. We caution you not to put undue reliance on these forward-looking statements as they involve risks and uncertainties that may cause actual results to vary materially from forward-looking statements as described in our Risk Factors in our report filed with the SEC.

Any forward-looking statements made on this call and in the presentation slides reflect our analysis as of today, and we have no plans or obligations to update them. All financial metrics that will be discussed on this call are non-GAAP, unless otherwise noted. These non-GAAP metrics, together with year-over-year comparisons in some cases, were not prepared in accordance with US Generally Accepted Accounting Principles or GAAP. A reconciliation of these non-GAAP metrics to the closest comparable GAAP metric is provided in our earnings release and our earnings presentation slides, which are available on 8x8's Relations website at investors.8x8.com. With that, I'll turn the call over to Samuel Wilson.

Samuel Wilson: Good afternoon, everyone. Thank you for joining us today to review our fourth quarter and full fiscal year 2025 performance. I want to express my deep appreciation to our global team, our customers, our partners, and our investors. This quarter reflects the grit, focus, and long-term thinking that defines 8x8 gives me real confidence about where we're headed. Before we get into the details of the quarter, I want to address a few of the broader market dynamics. While our opportunity remains large, the economic picture is and recent tariff actions and global uncertainty have added more noise to an already complex environment. We're staying focused on what we control.

Disciplined execution, platform innovation, and delivering outcomes that matter to our customers. Markets will ebb and flow. But what doesn't change is our commitment to building a durable, cash-generative business that creates long-term value. And that's exactly what we're doing. We're not dismissing these challenges. But we've prepared for them. Our business model is built on resilience, and the results for the quarter reflect operational discipline, business quality, and the flexibility to keep investing where it counts. Our theme for today is simple. The flywheel is starting to turn. After several years of foundational work, we are seeing real acceleration in our core 8x8 revenue, platform differentiation, and strategic execution.

This momentum is visible in our numbers, in our innovation, and the way our customers are responding. Let's walk through three key messages we believe define the fiscal fourth quarter and FY '25 and why I'm confident we have a solid future. As many of you know, we began a massive transformation of 8x8 in earnest fiscal 2023. The heels of our acquisition of Hughes. Had a clear plan to fix our financial model, invest in innovation and retention, and deliver measurable CX outcomes for our customers. We took bold steps to set the stage. We began paying down debt to increase our financial flexibility. We rebranded the company and completely rebuilt our go-to-market functions while continuing to invest. In innovation.

Now, as we exit fiscal 2025, I am confident in saying we are starting to see the results of our GTM rebuild, which is not complete yet. For the fourth quarter, year-over-year growth in 8x8, excluding revenue from all Fuse customers, accelerated to 4.6% from 2.7% in Q3. This is the second consecutive quarter of improvement and marks our highest growth rate in 8x8 stand-alone service revenue in ten quarters. We've also accelerated when looking at the entire year. For fiscal 2025, 8x8 service revenue, again excluding revenue from Fuze customers, grew 2.8% compared to growth of 1.8% in fiscal 2024.

Lastly, as Kevin will discuss, the combined cash flow from operations for fiscal 2024 and 2025 is the highest two years ever at 8x8. And over half our market capitalization as of Friday. We have used the cash wisely, paying off debt and reinvesting in platform innovation, that is driving today's growth. Highlights for the fourth quarter include the continued rapid adoption of our communications APIs, also known as CPaaS. The number of interactions surged in the fourth quarter, driving solid growth. The number of customers with three or more products increased 13% year over year to more than 700 customers. This reflects increasing cross-sell to our installed base as well as landing more new logos with multiple products.

Demonstrating this trend 80% of our top 20 new logo customers and two-thirds of our top 20 add-on deals included both unified communications and contact center. We saw strong momentum in sales of our Microsoft Teams integrations. With new license sales up 72% in the fourth quarter of 2024. The cumulative number of licenses sold into Teams environment grew 30% year over year and now totals more than 550,000 seats. We also continue to see sizable UC only deals as customers migrate from legacy vendors in particular, Avaya, MyTel, and Cisco. We win these deals based on the strength of our unified platform and the initial UCaaS deployment is typically the first phase of a multiproduct adoption.

Finally, we made substantial progress in upgrading customers from the used service platform to 8x8. We expect to have all the customers fully off the legacy Fuse platform by the end of the calendar year. I believe these are important signals especially in the current uncertain environment. We still have a lot of work to do, and we are seeing a steady climb not just isolated winds. That gives me confidence as we look beyond our fiscal year 2026 into fiscal 2027 and fiscal 2028. Our second key message this quarter is about innovation. Specifically how we've added new AI-based capabilities across our platform. Expanded our technology partner ecosystem and improved usability and accessibility.

In the quarter, we introduced a series of platform-level enhancements designed to solve systematic challenges in customer experience, employee efficiency, and digital transformation. Before we go through the highlights, it makes sense to add the context of how the 8x8 platform for CX is differentiated and why it matters for customers. You already know that 8x8 was the first in the industry to deliver an integrated platform with contact center unified communication and communications APIs built into a single cloud-native solution. AgenTeq AI requires data quantity quality, and context to deliver on its promise. 8x8 platform for CX delivers all three of three via the customer interaction data platform or CIDP.

CIDP captures connects, and contextualizes interaction data across the organization and across channels. With fully AI-optimized data, customers are able to unlock the potential of an expanding portfolio of powerful AI capabilities, including intelligent routing, set of analysis, live agent guidance, journey optimization, and a host of other capabilities available from 8x8. And our partners. In early April, we showcased to our UK customer advisory council and our global industry handler how our unified platform and approach the data differentiated our solutions, and they were notably impressed. We heard comments like, quote, this feels like a company starting to go on offense. Not just cleaning up from the past. And, quote, your biggest differentiator might be how you show up.

There's a level of honesty and transparency we don't often see in this space. During these events, we showcased recent innovations, including platform-wide AI chat summarization and Compose with AI capabilities. Advanced CX solutions that leverage the power of our platform, such as 8x8 JourneyIQ, which gives businesses real-time visibility into the customer journey, not just inside the contact center, but across every department and channel. And 8x8 AI Orchestrator, which connects communications flows using a GUI across systems, ensuring that transitions between bots agents, and departments are seamless, smart, and contextual. Expanding in omnichannel, we became the first contact center provider to fully integrate rich communication services or RCS business message. Enabling rich branded, two-way messaging for digital channels.

I'm proud to say we are carrying traffic today and I'm bullish on RCS. We launched Apple Pay and Google Pay to via 8x8 Secure Pay. Streamlining transactions and expanding self-service payment options. We also expanded our technology partner ecosystem or TPETZ for short, to provide customers with best in breed from single source solutions New integrations include Call Cabinet, to deliver industry-leading compliant call recording for regulated industries, SpinSci, powering e h compliant patient engagement in health care. And lastly, Meltwater, allowing social media engagement to be routed tracked, and resolved within the contact center.

As with other TPEST partners, these solutions are deeply integrated with our platform and our customer interaction data layer, to deliver complete solutions and specific outcomes. This allows the customers to punch above their weight and deliver tailored omnichannel customer experiences specifically available only to the largest enterprise. Our platform strategy, continued innovation, and our focus on outcomes is clearly resonating with customers. Let me highlight AP wins. A prominent UK-based travel company who chose 8x8 platform for CX for its seamless communication and collaboration. Across the organization combined with the scalability and global reach to power their ambitious expansion. Plan. They are deploying 8x8 work, contact center, and voice for teams.

A home building products company where our success was driven by our compelling AI vision and the ability to consolidate multiple legacy systems. Our team delivered a tailored, impactful demonstration to showcase how 8x8 could simplify operation and deliver the features they need. A leading UK-based mortgage lender where we demonstrated a foolproof solution that aligned closely with their strategic goals. We stood out from competitive solutions with a unified user experience and tangible cost benefit. Products included 8x8 voice for team, 8x8 contact center with enhanced IVR. A US-based network of medical clinics where we're able to demonstrate the integration of their EHR system with 8x8 contact center.

An initiative that the competition was either unable or unwilling to support. Each of these wins and other wins profiled in the earnings deck, demonstrate the breadth of our solution Perhaps most importantly, they showcase our consultative partner-first approach solving customer challenges and delivering outcomes. The third and final key message is about the multiple transitions we are navigating in an uncertain economic environment. We believe these transitions are essential to position us for long-term durable growth profitability, and value creation. Let me touch on the largest of these initiatives. First, our go-to-market rebuild and channel evolution. After slashing costs in fiscal 2023 and early fiscal 2024, have rebuilt our go-to-market model around solution selling and partner enablement.

This has required making changes in our sales organization and building innovative training and robust processes for accountability. And we're seeing performance improve. The next initiative is continuing to grow our enterprise business while maintaining our installed base of small business customers. We know our innovation strategy and focus on outcome resonates small and medium-sized enterprises. And we are investing in targeted programs to reach new logos and expand our wallet share within existing customers. But this does not mean we are abandoning our installed base of small business customers. Investments expanding AI capabilities in 8x8 Work and other UC feature releases along with resources dedicated to education and customer success all support this customer cohort.

Finally, we continue to upgrade the FUSE customer base to 8x8 platform. We recognize that not all of the remaining customers will make the transition, and we are being conservative in our estimates of the amount of revenue we will retain. Those that upgrade are exceptionally happy, and have a net dollar retention rate above a %. These transitions are not easy. But they're setting the stage for what comes next. As we look forward, we remain realistic about the challenges ahead. But we are seeing signs of a tailwind. Our 8x8 business is growing, and our growth is accelerating.

Again, growth is not a straight line, but we continue to believe that high single-digit revenue growth and double-digit operating margins are achievable in the next few years. Our innovation engine is delivering and our own platform and new products are being adopted. At scale. And we are navigating through the current economic conditions while ensuring our GTM and financial foundations are stronger than they've been in years. Our guidance for fiscal 2026 reflects the impacts of our decision to close down the Fuse platform, and that impact lessens substantially in fiscal 2027. We believe that, with continued execution, we can achieve that high single-digit service revenue growth by fiscal 2028.

And we believe we can improve each year between now and then. Thank you for your continued support, I will now turn the call over to Kevin to take you through a detailed financial performance.

Kevin Kraus: Thanks, Sam. Good afternoon, everyone, and thank you for joining us for our fiscal fourth quarter earnings call. As we wrap up fiscal 2025, I want to recognize our team's unwavering commitment to advancing our strategic priorities by improving operational efficiency, generating strong cash flow, and driving meaningful innovation. In Q4, we maintained focused execution, prudent cost management, and steady progress on platform innovation. All while navigating a challenging macroeconomic backdrop. The fourth quarter marked another period of solid performance, including a new record in communications platform usage revenue, strong profit margins, and another quarter of positive cash flow from operations following last quarter's record. Q4 marked our seventeenth straight quarter of positive operating cash flow and non-GAAP operating profit.

We continued our thoughtful approach to debt reduction, making a $15 million term loan prepayment during Q4 and an additional $15 million payment in April during fiscal Q1 2026. With these actions, we have now reduced the principal balance of our debt by over $209 million, or approximately 38% since the August 2022 peak. Detailed results are available in our press release and trended financials on the Investor Relations site. I'll walk through the key highlights. Unless otherwise noted, all figures aside from revenue and cash flow on a non-GAAP basis. Total revenue was $177 million, near the midpoint of our guidance range. Service revenue totaled $171.6 million, also near the midpoint of guidance.

Our service revenue, excluding SKUs, grew year over year. This growth was offset by the anticipated decline in revenue from legacy FUSE customers. Importantly, we made significant progress in upgrading these customers to the 8x8 platform, reducing the remaining revenue on the Fuse platform to under 5% of service revenue, down from approximately 11% in Q4 2024. The pace of these upgrades has accelerated over the past few months, and we remain on track to complete the transition by the end of calendar year 2025. This will further simplify our operations and enhance customer engagement. These results underscore the resilience of our core business, even as we address the fuse-related headwinds.

Gross margin for the quarter was 69%, at the low end of our guidance range. This was driven by revenue mix, as lower margin platform usage revenue grew to approximately 13.5% of total revenue, up both sequentially and year over year. The gross margin of our underlying subscription business remained healthy and consistent with prior quarters. Our total operating expenses remained in line with prior periods, reflecting our continued approach to responsible cost management. As a result, we delivered 10% operating margin, at the high end of our guidance range. We also made meaningful progress on GAAP profitability, marking our third consecutive quarter of GAAP operating income, an important milestone.

Stock-based compensation declined to 4.6% of total revenue, a multiyear low, down over $22 million year over year and nearly $50 million or 55% over two years, reflecting our shift to primarily cash-based compensation for most employees, which is captured in our non-GAAP operating income. Turning to the balance sheet, we ended Q4 with $89.3 million in cash, cash equivalents, and restricted cash, down approximately $15 million sequentially due to the term loan prepayment made in the quarter. The Q4 balance sheet reflects $11.6 million in current term loan liabilities, net of unamortized discounts and issuance costs, corresponding to $12 million in principal payments due over the next twelve months.

Following our $15 million prepayment in April, we have no remaining short-term debt obligations for fiscal year 2026, with the next scheduled quarterly payment due on 06/30/2026. Our net debt to trailing twelve-month EBITDA ratio was approximately 2.7 times, down from over six times in fiscal Q2 2023, enhancing our financial flexibility for strategic execution. We also reported stockholders' equity growth for the fourth consecutive quarter, underscoring steady progress in strengthening our capital position. Our remaining performance obligation ended at $780 million, up approximately 1% year over year, reflecting the strength of our multiyear contractual commitments and a healthy recurring revenue base.

We generated $5.9 million in operating cash flow in Q4, building on a record Q3 and bringing full-year cash flow to $63.6 million, within the $61 million to $65 million range provided last quarter. Over the past two years, we've generated more than $142 million in operating cash flow, highlighting the strength of our business model and our ability to fund strategic investments while evolving into a solutions-based CX platform. While cash flow may fluctuate due to seasonality, investment timing, and other factors, we remain committed to disciplined capital management in support of long-term growth and shareholder value.

We continue to invest in simplifying how customers and partners engage with 8x8, enhancing our direct channel and digital go-to-market strategies, and strengthening our technology ecosystem through advanced AI integration. With a focus on mid-market and enterprise customers, we're equipping our sales teams with new enablement tools and training, while expanding our use of AI and automation across both front and back office functions to drive productivity and efficiency. These investments are central to unlocking long-term operating leverage, enabling scalable engagement, reducing our cost base, supporting sustained revenue growth and profitability. As we fund these growth initiatives, we expect some near-term pressure on non-GAAP operating margin.

However, with over $60 million of debt retired in fiscal 2025, and an additional $15 million prepaid in April, our quarterly interest burden has meaningfully declined. As a result, we expect non-GAAP net income to remain stable, even with modest margin compression, supporting consistent bottom-line performance while positioning the business for long-term growth. We continue to manage our cost structure with a focus on efficiency, aiming to balance stability with support for growth and innovation. Our target expense mix is roughly 14-15% of revenue for R&D, 33-35% for sales and marketing, and around 10% for G&A. At the same time, we maintain flexibility to adapt spending as needed, an important advantage in today's uncertain macro environment.

For fiscal Q1 2026, we are guiding as follows. Service revenue between $170 million and $175 million. Total revenue between $175 million and $182 million, and non-GAAP operating margin between 9% and 9.5%. In fiscal Q1 2026, we expect interest expense, including amortization of debt issuance costs, to be approximately $4.9 million based on current interest rates and our outstanding debt balance. Cash interest paid is projected to be around $2.6 million as the semiannual interest on our 2028 convertible note is not payable during the quarter. Our term loan interest rate assumption remains at approximately 7.3%, reflecting SOFR plus 3%.

We anticipate fully diluted non-GAAP earnings per share in the range of $0.07 to $0.09 and operating cash flow between $5 million and $6 million. For fiscal year 2026, our guidance reflects the range of potential outcomes given ongoing macroeconomic uncertainty and FX volatility, especially with about one-third of our revenue generated outside The US. For the full fiscal year 2026, we are guiding as follows. Service revenue is expected to be between $682 million and $702 million. Total revenue is expected to be between $702 million and $724 million. Full-year operating margin is projected between 9-10%, translating to non-GAAP operating income of approximately $67.5 million at the midpoint of our full-year revenue and operating margin guidance.

As I noted earlier, even with a year-over-year step down in operating margin, we expect our non-GAAP net income to remain relatively stable with fiscal 2025 given the expected reduction in interest expense. We expect fully diluted non-GAAP earnings per share to be in the range of $0.34 to $0.37 for the year, assuming approximately 144 million average diluted shares outstanding. And we anticipate cash flow from operations to be between $40 million and $50 million for the full year. To close, I want to thank our employees for their ongoing dedication and Fiscal 2025 was a year of meaningful progress. Tightening our operating model, delivering consistent profitability, and strengthening our foundation for growth.

As we enter fiscal 2026, our priorities remain clear. Focused execution, invest in scalable innovation, and continue delivering value for our customers and shareholders. With that, I'll turn it over for Q&A.

Operator: As a reminder, to ask a question, you will need to press 11 on your telephone. To remove yourself from the queue, you may press 11 again. Our first question comes from the line of Peter Levine of Evercore. Please go ahead, Peter.

Peter Levine: Great. Thank you for taking my question. You know, maybe can you share with us what you're hearing from your field rep and your partners in terms of the macro impact? Is it sales cycles? Is it just a delay in spending? Maybe just give us a little bit more color on what you're seeing and hearing from the macro side.

Samuel Wilson: Sure, Peter. And it's Sam, and thanks for the question. Look. I'll give you a little bit of a play by play. Right? So in March, as the tariff stuff and April was really taking off, we noticed in The US, a I don't for lack of a better word, a bit of chaos. Some was elongated deal cycles. Some was shrinking of deal size depending on the urgency around the need to switch. So if you were in the contract with an on-prem provider and those kinds of things, you get a deal. But you might have done smaller than you originally wanted or you broke it up into more phases and those kinds of things.

As this quarter has been rolling out so April was a little bit all over the place and May's been a little calmer. I don't know how you guys feel on the equity market side of the house, but it's just been a little calmer in the old US technology side of the house. In terms of the rest of the world, don't know. They just ignore us. I mean, it seems like internal to us, it felt like at least to me two different markets. There was The US the rest of the world, and the rest of the world was chugging along.

Peter Levine: Perfect. And then maybe can you clarify? I know there's a lot of going on with the changes to the go-to-market. You said there's still some that needs to be addressed or you're still working through a few other changes. Maybe just walk us through what remains in terms of your go-to-market. And then maybe just Kevin, real quick, can you give us like an adjusted service revenue growth for fiscal 2026 excluding the fuse? Thank you.

Samuel Wilson: Okay. So you know, Peter, it's a work in progress. So we took a company that focused basically 100% of its business four years ago in the notion of buy what you're buying today in the cloud. To buy a solution and an outcome around customer engagement from us. And so that's required a complete you know, rebuild of the sales and marketing engine You'll notice it in our rebrand. You'll notice it in how we structure our sales organization, all those kinds of things. A lot of the heavy reorganization work's been done. With the work at SKO this year, we've launched our new sales processes and things around more solution selling and outcome-based selling.

And now it's just a matter of fine-tuning the engine. I would say we're, you know, 60, 70% of the way through that. But it takes a while because, you know, the deal cycles. Right? They're nine months. So as we launch these things, we get sort of see know, eight seven, eight, nine months later to see how well they've taken and how it's working. And so I think that's a lot of fine-tuning that I would expect over the next year.

Kevin Kraus: Yeah. And, Peter, in terms of the revenue growth excluding Fuze, so Sam mentioned in the script also, it was 44.6% year over year, and it's an increase from the growth from Q3. So we're a positive grower excluding the fuse business.

Kate Patterson: He also wanted fiscal year.

Kevin Kraus: Fiscal year. What I gave you.

Samuel Wilson: 3% ish.

Kate Patterson: It's yeah. 2.9. 2.9%.

Samuel Wilson: I think he's asking for next year, though. Oh, said he said thank you. Yeah. He's asking actually he's asking that's that's all nice. He could've gotten that out of the script. Really wants to know what you're forecasting for next year. Got it. Got it. My mistake.

Kevin Kraus: Peter. Yeah. It I don't have the number handy, but it'd be a positive growth rate. The headwinds go away, next year. So we should have a positive number again.

Peter Levine: Great. Thank you guys for taking my question.

Operator: Our next question comes from the line of Siti Panigrahi of Mizuho. Please go ahead, Siti.

Siti Panigrahi: Hi. Can you can you hear me?

Samuel Wilson: Yes. We can.

Operator: Alright. Great. So just wanted to follow-up on your growth for next year and year after. You talk about even driving to high single-digit growth. How much of that mostly driven by the go-to-market changes they are planning you are planning to do versus customer, like, demand environment, like, customer started spending? Because the reason I'm asking is we're hearing from some of your peers about, you know, growth deceleration mostly in the CCaaS and UCaaS space. So I would love to hear your assumption on that growth rate acceleration.

Samuel Wilson: So I don't think it has anything to do with the market. We never really forecast the market's going to substantially change its growth rate. We generally forecast whatever the most recent third-party analyst estimates are for the growth rate for the market. We really base it on the fact that we've got, you know, as we said in the script, significant increase in the number of multiproduct customers. So over half of our subscription revenue is now with customers with two plus products, and we see a better retention rate with those. So that'll flow through the model. We're continuing to sell our new products. That flows through the model. We've continued to expand our distribution.

That flows through the model. And we're restructuring and improving our performance of our GTM spending. So that'll flow through the model. So really, our growth rate, you know, I would say, I use the term loosely inside the company. It's inside our four walls, not outside our four walls.

Siti Panigrahi: Okay. And then, Kevin, I look at your guidance for cash flow, and I understand some of the investments you are doing but if I see the margin contraction versus cash operating cash flow contraction seems to be with more. Could you walk us through, like, what's your agenda, and how should we think about the cash flow part of the business? For fiscal 2026?

Kevin Kraus: Yeah. So, look, I gave her $10 million range on that on that guide. We are making the investments. We that we've been talking about here on the call. There's you know, these are good investments in growth and so forth. And our focus also is on the, you know, the ability to keep our net income you know, flat and stable with previous periods. So I think it's just a function of the investment. Maybe a, you know, a touch of you know, I'm not going out on a limb on the forecast for the for the cash flow guide, but, you know, we're comfortably generating a good amount of cash flow for next year.

So it's, you know, kind of a measured approach to the guide on that.

Siti Panigrahi: Okay. Great. Thank you.

Operator: Our next question comes from the line of Catherine Trebnick of Rosenblatt Securities. Please go ahead, Catherine.

Catherine Trebnick: Yes. Thanks for taking my question. Two Sam. On, you know, on you've really been focused on the products. So on the CCaaS piece of the business, now why are you winning, and then what specific piece of your product is driving those wins? Thanks. And then the follow on is, looks like from the deck, did a really good job in The UK landing a lot of customers. Any you also have a lot of bars and resellers in the APAC region. And what's the status of how CPaaS is doing in that region. Thank you.

Samuel Wilson: Alright. Multi-headed piece there, Catherine. So let me do let me do this. Why don't we wait in contact I would say, first and foremost, we have a complete solution. And if I summarized it in one sentence, it's you can get best in breed technology from a single vendor. So with a combination of our contact center plus I'll technology partner ecosystem, bringing out a Gartner Magic Quadrant player in contact center and workflow. We've got add-ons from companies like Cognigy and Verint and Calabrio and PCI Pal, etcetera. And we wrap it all in bundles that it achieve customer outcomes. And for our core market mid-market enterprise and above kind of that is a really powerful message.

You don't have a lot of developers. They don't wanna spend a fortune on a systems integration contract. They just wanna go to a single vendor and buy it You know, one throat to choke, but they're not willing to give up the fact they want great performance from their products. And we give them the best of both worlds. One throat to choke, one integrated platform, native feeling integrations, and, you know, a compelling commercial offer to put it all together and have us deliver it and beautiful professional services on top of it. Okay. Yes. The UK did great last quarter. We've got some new sales leadership there that's doing fantastic.

We've, you know, we've improved our execution there. And, as always, I'm really proud of our UK operations. We've been in the market since 02/2013 and continue to do exceptionally well in that market. It carries a higher retention rate and kind of a higher conversion rates than we get in The US. And I just you huge shout out and credit to the UK team. Alright. I saved the best for last. The CPaaS team killed it again last quarter. They continue to do fantastic. Communications APIs or platform APIs continue to be a high growth business for us relative to everything else. And we continue to invest in there and expand it. Big believer in CPaaS.

We continue to see it as a core part of our business. And, you know, as we like to say, we're not a UC company. We're not a CC company. We're not a CPaaS company. A business communications company because one of our strongest advantages overall in the marketplace is that we offer all those technologies under one roof fully integrated. Alright. Thanks. Catherine, can I do a can I can I do a cheat on you here? Can I expand the question slightly? And we were the first we were the first contact center company to announce RCS integrated with the contact center.

So we have two-way RCS traffic currently being carried right now in real time And I'm super proud of that because I think it shows when someone invests in buying our products, they're investing in that journey and that vision of where we're going. And that's just a prime example. Thanks for giving me the freebie to call that out.

Catherine Trebnick: Oh, well, thanks.

Operator: Next question comes from the line of Michael Funk of Bank of America. Please go ahead, Michael.

Michael Funk: Great. Yeah. Thank you. Thanks for the question. And, Kevin, great to talk to you guys again. I want to go back to the comment about high single-digit revenue growth by fiscal year 2028. I'm just trying to tie that back to this year. Right? So fuse is less than 5% of revenue. That's baked in to the revenue full revenue guide for the during the sun setting by year end. But then, you know, off of that, what takes you to the high more digit revenue growth? Is it just I mean, is it increase in seat count at customers? Is it larger wallet share? Are you assuming, you know, stable increasing pricing?

Just trying to figure out what takes that customer spend or the revenue growth to the high single digits? Even once SKUs rolls off by year end? Assuming you, you know, get the transfer some of those over.

Samuel Wilson: Alright. I'm gonna give you the strategic overview, and I will let Kevin give you any follow-on details that he sees fit. Alright. So as we roll this year, so fiscal 2025 that we just finished, and fiscal 2026, we'll have the headwinds of FUSE. So and that actually rolls into fiscal 2027. So it's less of a headwind, but as we roll off the last customers, etcetera. Right? So core business, we're growing 4.6%. Is that what I 4.8%. I forgot that. 4.6. I forgot the number. 4.6% core business, that starts to shine through. And so we, you know, and that's been accelerating as new products and those things take hold. And lift that business up.

So once we get Fuse out of the way, that'll add, you know and the new product continue to mature that continues to grow. You're asking about wallet or etcetera. As we roll out more and more new products, and I think we're going to reach a crossover point here shortly, Well, we've already reached a crossover point where two plus product customers are over half our subscription revenue. We're gonna reach a crossover point probably sometime the next three or four quarters where three plus product customers surpass one product customers. And we do see a substantially higher renewal rate retention rate when we do that. And so those things start to lift.

As you know, in these SaaS business models, Michael, it takes a little while to get that to shine all the way through. We get fused out of the way. We get the core business continuing to show a higher sustained retention rate. We continue to land new business and grow our new business is greater than our churn. And so that'll continue to make the pool grow bigger and eventually the math sort of works out to high single digits.

Kevin Kraus: And that one thing I would add on top of what Sam said is you know, we also have this rapidly growing usage-based business on top of all that recurring revenue. So it can inflect very quickly that it has, and so that contributes to the growth rates we expect in the future.

Michael Funk: No. Thank you both. One more quickly. Quickly if I could. So Sam, you made a lot of progress on the balance sheet on the expense structure, including stock-based comp. I know you mentioned go to market among other things. But where has your focus shifted now that you've made it through those first priorities on your list? What's top of your list week to week?

Samuel Wilson: Get back to growth. Right? So we're aggressive. We've accelerated. I talked about it two quarters ago. We accelerated the shutdown of Fuse. We're on track to do that by end of the year. That helps those numbers shine through, right? Because there's this prevailing belief that somehow we're going out of business or something. I don't know that the long-term discounted cash flow value of the company is zero or however think about it. And so I think I need to get that to shine through. So I've been accelerating that. Been investing for growth. We're investing in CPaaS and those kinds of things.

And then eventually, as we get into fiscal 2027 and '28, we'll start to invest a little bit more around distribution and improving those things.

Michael Funk: Great. Thank you, Sam. Thank you, Kevin.

Operator: Thank you. Again, to ask a question, please press 11 on your telephone. Our next question comes from the line of Meta Marshall of Morgan Stanley. Please go ahead, Metza.

Jamie: Hey, everyone. This is Jamie on for Meade. I appreciate you taking the question. Maybe just firstly, it looks like you guys are still seeing some pretty strong growth in the new product side, but that maybe slowed a little bit from, like, the 60% or so clip that you'd seen in Q3. So just any specific call outs there?

Samuel Wilson: Yeah. We did see a little bit of a slowdown in the new product growth. It didn't accelerate. Think that was a function of the macroeconomic environment, the compares, the numbers getting bigger. All those sort of things cobble together.

Jamie: Got it. And then just similarly as a follow-up, maybe just unpacking the step down in RPO. Is that more macro related or something that would be attributable to the acceleration in the FUSE transition?

Samuel Wilson: Yeah. It's just fuse transition mainly. We you know, as we accelerate that, we're rolling off some of those things.

Jamie: Great. Thanks so much. I'll jump back in queue.

Kate Patterson: Thank you.

Operator: Thank you. I would now like to turn the conference back over to Sam Wilson for closing remarks.

Samuel Wilson: Thank you so much, everyone. We'll with anybody. Kate Patterson and Asia are available from Investor Relations to follow-up in any form or fashion. Thank you so much to our customers, our partners, our employees, and everyone for joining us on this call today. And have a great day.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

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